Suppose O can produce corn for $1 per bushel and wheat for $6 per bushel while S can produce corn for $2 per bushel and wheat for $4 per bushel. O has an absolute and comparative advantage in corn while S has an absolute and comparative advantage in wheat.
1
Expert's answer
2014-10-03T15:00:34-0400
The absolute opportunity costs of producing 1 corn is $1 for O and $2 for S. O can produce corn cheaper, then S, that’s why O has an absolute advantage in corn. The absolute opportunity costs of producing 1 wheat is $6 per bushel for O and $4 per bushel for S. S can produce wheat cheaper, then O, that’s why S has an absolute advantage in corn. The alternative opportunity costs of producing 1 corn is $1/$6 = $0.17 for O and $2/$4=$0.5 for S. O can produce corn cheaper, then S, that’s why O has an comparative advantage in corn. The alternative opportunity costs of producing 1 wheat is $6/1 = $6 for O and $4/$2=$2 for S. S can produce wheat cheaper, then O, that’s why S has an absolute advantage in corn. We can see that O has an absolute and comparative advantage in corn while S has an absolute and comparative advantage in wheat. That’s why this statement is true.
"assignmentexpert.com" is professional group of people in Math subjects! They did assignments in very high level of mathematical modelling in the best quality. Thanks a lot
Comments
Leave a comment